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Labour Regulation and Employment Dynamics at the State Level in India

  • Sean Dougherty

Over the past decade, labour market outcomes have improved in India, with net employment rising markedly for the economy as a whole. However, these gains have arisen primarily in the unorganized and informal sectors of the economy, where productivity and wages are generally much lower than in the formal organized sector. It is only India’s organized sector that is subject to labour market regulation, and here employment has fallen. The role of employment protection legislation in affecting employment outcomes is controversial both in the OECD area and in India. This paper looks at the impact of employment protection legislation and related regulation on the dynamics of employment in the organized sector of the economy, using newly constructed measures of national regulation and state labour reforms. We find that while reforms have taken some of the bite out of core labour laws, more comprehensive reforms are needed to address the distortions that have emerged. This working paper relates to the 2007 Economic Survey of India ( Réglementation du travail et dynamiques de l'emploi au niveau de l'État en Inde Au cours de la dernière décennie, les résultats du marché du travail se sont améliorés en Inde, l’emploi net augmentant de façon sensible dans l’ensemble de l’économie. Cependant, ces gains sont intervenus essentiellement dans les secteurs non organisé et informel de l’économie, où la productivité et les salaires sont généralement bien moindres que dans le secteur organisé formel. Seul le secteur organisé est assujetti à la réglementation du marché du travail et, dans ce secteur, l’emploi a diminué. L’incidence de la législation de protection de l’emploi sur la performance du marché du travail est sujette à controverses aussi bien dans la zone de l’OCDE qu’en Inde. Le présent article examine l’impact de cette législation et des réglementations associées sur la dynamique de l’emploi dans le secteur organisé de l’économie, en utilisant de nouvelles mesures de la réglementation nationale et des réformes au niveau des Etats. Il ressort de cette étude que si les réformes ont permis d’assouplir quelque peu la rigidité du droit fondamental du travail, des mesures plus approfondies sont nécessaires pour remédier aux distorsions qui sont apparues. Ce document de travail se rapporte à l’Étude économique de l’Inde 2007 (

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 624.

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Date of creation: 04 Aug 2008
Date of revision:
Handle: RePEc:oec:ecoaaa:624-en
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